By Mark DeCambre and Barbara Kollmeyer, MarketWatch
10-year yield continues to ease at 2.87%
U.S. stocks rallied Friday afternoon as U.S. benchmarks looked
set to end trade on a high note after a bumpy, albeit shortened,
week of trade marked by persistent fretting about rising bond
yields and the reemergence of long-stagnant inflation.
However, a report from the Federal Reserve
(http://www.marketwatch.com/story/fed-on-track-for-3-rate-hikes-in-2018-but-4-no-sign-in-report-to-congress-2018-02-23)offered
little sign that the central bank was overly concerned about the
type of out-of-control inflation that might warrant more than three
rate increases this year.
What are the main benchmarks doing?
Dow Jones Industrial Average rose 271 points, or 1.1%, to
25,230, benefiting from sharp gains in components Goldman Sachs
Group Inc., underlining rising demand for bank stocks which look to
profit as benchmark yields climb. The S&P 500 index added 36
points, or 1.3%, to 2,739, supported by gains of around 2% in the
energy and technology sectors. The tech-laden Nasdaq Composite
Index , meanwhile, surged 109 points, or 1.5%, to 7,319.
On Thursday, the Dow advanced 164.70 points, or 0.7%, to
24,962.48. The S&P 500 edged up 0.1% to 2,703.96, but the
Nasdaq Composite Index fell 0.1% to 7,210.09. That marked a fourth
straight losing session
(http://www.marketwatch.com/story/the-nasdaq-just-logged-its-longest-losing-skid-in-more-than-a-year-2018-02-22)
for the tech-heavy index, its longest losing skid since a
nine-session slide ended Nov. 4, 2016, according to WSJ Market Data
Group.
As of Thursday's close, the Dow and S&P 500 were each facing
a loss of less than 1% for the week, while the Nasdaq Composite was
on track to gain 0.2%, despite its lengthy skid in negative
territory.
Read:This doggy Dow stock can teach you smart value investing
tricks
(http://www.marketwatch.com/story/how-ges-stumble-can-teach-you-to-be-a-smart-value-stock-investor-2018-02-22)
What could drive markets?
In its semiannual monetary policy report, the Fed signaled that
it saw broad improvement in the U.S. economy and pointed to a
pickup in inflation toward the end of last year, but didn't suggest
that a rise in prices warranted more aggressive policy action
(http://www.marketwatch.com/story/fed-on-track-for-3-rate-hikes-in-2018-but-4-no-sign-in-report-to-congress-2018-02-23).
Indeed, the Fed stuck to its forecast for inflation to hover at
or below its 2% target in 2018. The 12-month rate of inflation
based on the Fed's preferred PCE index stood at 1.7% in
December.
The Fed's summary comes ahead of newly minted Fed Chairman
Jerome Powell's testimony about the economy before Congress next
week.
Powell's testimony arrives ahead of the Fed's key
monetary-policy convention next month, but after a release of
minutes for January on Wednesday rattled investors, already
fretting about inflation and bond yields drifting higher.
Wednesday's minutes
(https://www.federalreserve.gov/monetarypolicy/fomcminutes20180131.htm)
sparked a downdraft in equities as the yield of the 10-year
Treasury note hit a fresh four-year high above 2.956%, undercutting
appetite for assets perceived as risky like stocks. Most recently,
the 10-year Treasury note was down about basis points at 2.88%.
On Thursday, bond yields moderated after St. Louis Fed President
James Bullard cast doubt on the likelihood of four rate rises this
year
(http://www.marketwatch.com/story/feds-bullard-casts-doubt-on-expectations-of-four-interest-rate-hikes-this-year-2018-02-22),
dampening expectations of a faster pace of action.
Read:Here's why stock-market investors need to keep an eye on
the yield curve
(http://www.marketwatch.com/story/heres-why-stock-market-investors-need-to-keep-an-eye-on-the-yield-curve-2018-02-22)
Separately, comments from Treasury Secretary Steven Mnuchin were
drawing attention. In an interview with Bloomberg
(http://www.marketwatch.com/story/mnuchin-says-us-wages-can-rise-without-boosting-inflation-2018-02-23),
Mnuchin brushed aside concerns over rising wages, saying these
didn't necessarily have to trigger a rise in overall inflation. The
Fed policy report appeared to echo that view.
Opinion:3 reasons stock-market investors should think it really
is different this time
(http://www.marketwatch.com/story/3-reasons-stock-market-investors-should-think-it-really-is-different-this-time-2018-02-22)
What are strategists saying
Doug Cote, chief market strategist at Voya Investment
Management, said strong corporate earnings, healthy readings of
manufacturing justify an upbeat outlook for stocks and bond yields
rising off ultralow levels.
With that economic growth interest rates are rising and that is
a good thing. There is no way the economy can be growing at 3%, as
it is now, without the 10 year yield also going up but this is like
a high-quality problem," Cote said.
"Because although it will discount equities and create more
volatility, it is a sign that secular stagnation,
disinflation...are finally in the rearview mirror and now we're in
a normal market," he said, referring to a period framed by
easy-money policies across much of the globe in the wake of the
2007-09 financial crisis.
"(San Francisco Fed President John Williams) may be the most
important of the Fed speakers, because of his influential research
on the neutral policy rate and his positioning near the center of
the Committee," said Marshall Gittler, chief strategist at ACLS
Global.
"Recently, he has been tilting hawkish and so may be indicative
of a gradual shift in the center of gravity of the FOMC. That would
probably be positive for the dollar," Gittler said.
What stocks are moving?
Shares of Blue Buffalo Pet Products Inc.(BUFF) soared 17.3% in
after General Mills Inc.(GIS) announced an $8 billion buyout of the
company
(http://www.marketwatch.com/story/general-mills-buying-pet-foods-maker-blue-buffalo-in-8-billion-cash-deal-2018-02-23).
Shares of General Mills were off 3.7%.
Hewlett-Packard Enterprises Co.(HPE) shares jumped about 10.2%
after the enterprise-focused tech group reporting a strong fiscal
first quarter. Read:HP Enterprise earnings jolt stock, but there
isn't much to be excited about
(http://www.marketwatch.com/story/hp-enterprise-earnings-jolt-stock-but-there-isnt-much-to-be-excited-about-2018-02-22)
Shares of HP Inc.(HPQ) rose 3.1% after the consumer-focused tech
company beat earnings expectations and raised its full-year
forecast
(http://www.marketwatch.com/story/hp-earnings-beat-raised-forecast-send-stock-higher-2018-02-22).
Shares of Xcerra Corp.(XCRA) could be active after the company
that provides testing technology for semiconductors and electronics
said it would terminate its sale to a Chinese group
(http://www.marketwatch.com/story/xcerra-calls-off-580-million-deal-amid-scrutiny-2018-02-23),
saying federal approval was too hard to get for the $580 million
deal. The company's shares were up 2.2%.
How are other assets performing?
European stocks finished higher taking cues from U.S. equities
(http://www.marketwatch.com/story/european-stocks-struggle-to-find-impetus-to-follow-us-lead-higher-2018-02-23),
while Asian stocks rebounded
(http://www.marketwatch.com/story/asian-stocks-slide-following-wall-street-selloff-2018-02-21)
to mark a second-straight week of gains.
(http://www.marketwatch.com/story/asian-stocks-slide-following-wall-street-selloff-2018-02-21)Gold
prices slipped, ending Friday trade lower
(http://www.marketwatch.com/story/gold-on-track-for-biggest-weekly-drop-this-year-2018-02-23),
while the dollar , as gauged by the ICE U.S. Dollar Index , rose
0.2% to 89.950. Oil prices settled higher
(http://www.marketwatch.com/story/oil-on-track-for-second-consecutive-weekly-rise-2018-02-23),
after rig-count data.
(END) Dow Jones Newswires
February 23, 2018 15:17 ET (20:17 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.